State to Receive $38M from Medicaid Fraud Suit

Attorney General Jim Hood says some holiday deals are too good to be true. Urges caution.

Sept. 6, 2011

verbatim statement:Jackson, MS--Attorney General Jim Hood has won the State more than $38 million in a Medicaid fraud suit.

Judge Thomas L. Zebert found in favor of the State of Mississippi in its case against pharmaceutical company Sandoz, Inc., and awarded a total verdict of $38,191, 427.00. The case, Mississippi Medicaid Pharmaceutical Average Wholesale Price Litigation (Master Docket No. 65586-65632, 66312, 66313, 66314) involves allegations that Sandoz caused to be published inflated "Average Wholesale Prices" (AWPs) for the drugs manufactured by Sandoz, which resulted in the Mississippi Division of Medicaid (DOM) reimbursing pharmacies at an inflated prices in violation of the Mississippi Consumer Protection Act, the Mississippi Medicaid Fraud Control act, and common law fraud. The case was heard in the Chancery Court of Rankin County, Mississippi.

The Court ruled in favor of the State of Mississippi on the Consumer Protection Act and common law fraud. It awarded Mississippi $23,661,618.00 in compensatory damages; it awarded Mississippi $11,830,809.00 in punitive damages; and it awarded $2,699,000.00 in civil penalties (for 2,699 quarterly reports, at $1,000.00 each), for a verdict total of $38,191,427.00. In addition, the court entered an injunction on Sandoz using false AWPs when reporting prices to Mississippi.

The AG's case showed that Sandoz submitted inflated prices to the drug pricing publisher, First Data Bank, which Sandoz knew the states followed to determine how much they should reimburse the pharmacies. Sandoz used this artificially inflated margin between the price the pharmacies paid Sandoz versus what the state reimbursed them at the AWP, to induce more pharmacies to buy from them and, thus, increase its market share for the generic drugs it manufactured and sold. The result was the pharmacies made more money and Sandoz made a lot more by selling more drugs. In fact, noted in the Judge's opinion, "Sandoz advised one customer in 1992 'we offer substantial margins between acquisition costs and AWP for your profit potential'."

Attorney General Hood stated, "Sandoz, with its greed for more profits, caused Mississippi to overpay on drug prescriptions and some of our neediest citizens were being denied health care due to cost overruns." Evidence of Sondoz's fraud was included in an April 8, 2004, email from the Sandoz Vice President of Sales and Marketing, who stated, "[W]hen one talks AWP, WAC, net price, etc[.] to laymen it is very easy to create smoke and mirrors. . . . So you can see how I could speak to either number to create a story to my choosing[.]" Attorney General Hood continued, "It took a lot of hours and expense for the state to uncover these type of smoking gun documents to make our case. The facts are clear that the company used voodoo math to defraud the state. Judges do not give punitive damages unless defendants clearly deserve to be punished. This learned Judge popped Sondoz for $14 million in punitive damages and consumer protection penalties to send a message for other companies which try to take advantage of Mississippians."

Mississippi is pursing legal action against 54 pharmaceutical companies accused of defrauding the state's Division of Medicaid with inflated AWPs. The Sandoz case was the first in the State's litigation to go to trial.

According to General Hood, all of these companies used similar fraudulent math to defraud the state.

To date, Mississippi has settled with eight other pharmaceutical companies for a net of $38,709,700.

Drug companies sell drugs to health care providers such as pharmacies, physicians, hospitals and long-term care facilities that dispense drugs. The State reimburses the providers based on an estimate of the provider's acquisition cost of the drug. On average, the State of Mississippi spends more than $300 million each year to cover the cost of prescription drugs for patients on Medicaid.

The AWP for a drug is determined by the drug's manufacturer and is a significant factor in determining the amount of money that Medicaid will pay for a drug. False AWP reporting has the effect of increasing the profitability of an individual drug for the provider and stimulates the demand for that drug, resulting in more sales for the drug company. Inflated AWP can result in taxpayers, through Medicaid, paying more for pharmaceutical products than they should.

Investigation by the State of Mississippi, other state Attorneys General, and the U.S. Department of Justice revealed that the reported AWP frequently had little relationship to the actual price paid for the drug, and that inflated or false AWPs were widespread in the prescription drug industry.